Monday, May 09, 2005


The NHL Responds Directly to The Goodenow Message

I just talked to a top source at the NHL and the following was the gist of Goodenow's message to the players..."They (the NHLPA) were shocked that the new concepts introduced on April 4th and further discussed on the 19th were not elaborated upon. They could not believe that Mr. Bettman started Thursday's meeting by introducing new payroll tax elements which he referred to as a "floating tax" that would operate as another cap within the framework that was already discussed.The committee's analysis determined that this concept was a further step backwards. In fact, they concluded the following: the payroll tax started at 100% and could by the end of the 6 year agreement reach as high as 600% per/ team. So, a team would have to pay up to $200M in payroll taxes over the 6 year term to maintain payroll in $34 - 39M range. Teams would also lose at least 1 1st round pick after the first 2 years as a tax payer. On Friday, they took you through an analysis of tax structures and "forced" an acknowledgement that it ultimately "made no sense" and was beyond overkill. The League took what was introduced on April 4th (which the League agreed was a workable concept) and made it "totally unworkable". After "being exposed" in front of the owners, Mr. Bettman quickly offered to cap the payroll at 250%. Moreover, later in the afternoon, he said that he could consider abandoning this altogether. Other points were discussed but no real progress was made from the NHL's concepts over the last 2 days. In short, the last 2 days were not wasted because the League's concept was dealt with; but the meetings "weren't productive". The executive committee will meet in TO on Monday and look to "possibly" resume bargaining with the League on Tuesday."

The following is the NHL's response to the message....

1. Our proposal squarely addressed the concepts raised on April 4. In fact, it was the first substantive proposal made by either side based on those concepts. It was an effort to increase the Upper Limits of the Payroll Range beyond where we said we were prepared to go on April 4, and to "spread" the range from low end to high. (Previously, we had indicated that we were seeking no more than a $10 million range from low to high, and our proposal last week contemplated a $12 million spread from low to high.) What we told the Union on April 4 is that perhaps we could "get creative" on both the amount of the Upper Limit and the magnitude of the Payroll Range, provided we could incorporate certain "bells and whistles" that would serve to regulate Club behavior within the Range -- such as the structure and nature of the Payroll Tax. That's exactly what we said, and that's exactly what this proposal did.

2. The Committee's analysis was premised on a worst case scenario that could not have possibly transpired. The analysis: (1) assumed that the tax rate would act as a de facto salary cap, yet it also assumed that a majority of the Clubs in the League would be taxpayers in EVERY year of the Agreement -- totally inconsistent assumptions; (2) assumed that when faced with an increasingly prohibitive tax, certain Clubs would still spend to the Upper Limit in EVERY year of the Agreement, instead of cleansing themselves by managing their Payrolls within the non-taxed portion of the Payroll Range for a single year (improbable and irrational behavior, but if it were to happen, it certainly wouldn't be to the detriment of the players); (3) never allowed for the possibility that, even given an increasing tax rate, Clubs would EVER be deterred in their spending such that the tax threshold would be raised and the tax rate lowered for the following year (as our proposal would have contemplated). In short, if the system actually were to work precisely the way the Union projected it would work (based on inconsistent and irrational assumptions), it would suggest the need for a stronger -- not a weaker -- tax.

3. The Payroll Tax structure contemplated in the proposal provided for tax thresholds and tax rates that would adjust from year to year depending on Club spending trends. In other words, if, in a given year, there weren't enough "taxpayers", such that not enough money was being spent on player salaries, the tax threshold would be raised and the tax rate lowered in the following year of the Agreement so as to incentivize Clubs to spend more on player payrolls. By contrast, if there were too many taxpayers in a given year, such that it became obvious that Clubs were as a group spending too much on player payrolls (and incurring financial losses again as a result), the tax threshold would be lowered and the tax rate raised in the following year of the Agreement so as to incentivize less spending on player payrolls.

4. In talking through the Committee's "analysis" on Friday, and in response to the Union's concerns (as irrational as they were), the League offered to cap the maximum tax rate applicable AND/OR to restructure the Payroll Tax structure altogether, provided the Union was prepared to consider ways of addressing the League's concern that the system would result in too many teams spending at or near the Upper limit such that the League as a whole would again be losing money. The League's proposal was never "exposed", nor was Gary ever "embarrassed" before the owners. Our efforts on Friday are direct evidence of our continuing desire to negotiate a deal that works for both sides; the Union's actions reveal and evidence a different agenda.

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